Benefits of Invoice Finance

At some point in their early days, most businesses face problems with maintaining their cash flow. Even if they have enough clients and the service/product they offer are in demand, in 2018 everyone pays on credit. This means that while on paper, your business is doing great, when it comes to reinvesting, you simply won’t have enough funds on hand. In this situation, most people turn to invoice finance.

Now, a lot of people mix up factoring companies with debt collection companies, but these two industries are essentially different. Namely, debt collectors deal with receivables that are late or not coming through. On the other hand, factoring businesses deal with regular invoices that are coming in, but you don’t have the luxury of waiting for. With this in mind, here are three benefits of invoice finance.

1. You’re Not Borrowing

First of all, it is important to be clear about one thing – going with the invoice finance is not borrowing. All you do is trade your account receivables for cash. In other words, you’re not asking someone to give you money, you’re selling something and receiving fair payment for its value.

The way this works is quite simple. You sell your invoices to a factoring company for 80 percent of their value, which you receive in the next 24 hours. For the rest of the money, you will have to wait until your debtors have followed up with their payment. All these companies take is a standard fee which amounts somewhere between 1 and 5 percent of the total value.

2. Immediate Solution

Some people may think that the fee factoring companies are charging is too high, but there are a few variables you must take into consideration. First, when you decide to use invoice finance, the factoring company is taking all the risk. Who knows if your debtors will pay in time, or at all? Second, instead of getting paid a small amount of money each month, you get a substantial one-time payment.

Finally, invoice funding provides you with an instant solution to your immediate cash flow problem. If your business has a solid foundation, it probably won’t be long until it’s fully profitable. Unfortunately, you may not last that long in the business world if you don’t have the money for some immediate expenses.

3. No Interest Rates

The next benefit of the invoice finance is the fact that there are no interest rates. The value of your invoices is estimated and you are paid in accordance to what they are worth. When you apply for a bank loan, you also need to think about the interest rate which can change depending on the situation.

The worst option is going to the unconventional lender, the so-called loan shark, which means agreeing to even a higher interest rate. Not to mention that getting your funds this way is usually illegal.


One last thing, most businesses that had the dealings with invoice finance, claim that its best feature is its flexibility. You sell only those invoices you decide to and later on, you can add more if you feel the need. On top of all of that, there’s no restriction based on the size of your company. This means that the invoice finance is good for both startups as it is for larger enterprises.

By admin